Finance Minister Nirmala Sitharaman said on Wednesday that changes in personal income tax are aimed at nudging people towards the new regime, which is without exemptions.

The Union Budget has proposed changes in the new tax regime by making net income up to ₹7 lakh free of tax and reducing the number of slabs. The budget also proposed giving the benefit of standard deduction under the new regime. These changes are being seen as the end of the incentive era for savings and investment by salaried individuals.

Finance Minister Nirmala Sitharaman on gradual nudge towards new tax regime
The Union Budget has proposed changes in the new tax regime by making the net income up to ₹7 lakh free of tax; Here’s what Finance Minister Nirmala Sitharaman had to sayVideo Credit: PTI

FM said this is an effort to simplify direct taxes and make compliance easier. “The new taxation regime that we brought in for direct taxation 2-3 years ago has now greater incentives and greater attraction, so that people can unhesitatingly move from the old to the new. Of course, we are not compelling anybody; those who want to remain in old, can remain in old having enough justification. But the new one, obviously, is now attractive with a greater rebate and provides for a simplified and lower rate of taxation,” she said.

‘Beautifully balanced’

FM described the budget as “beautifully balanced,” as it has tried to address various segments while factoring in the fiscal consolidation roadmap. “Balancing is where we can sustain capital expenditures from the government. Simultaneously, in the private sector, give a lot of push and impetus for MSME, not forgetting the middle-class individuals who need tax breaks and relief through taxation,” she said.

Further, she highlighted that large macro considerations have been kept in mind. “Fiscal consolidation has not been kept on the back burner; we have attended to it,” she said. The government managed to keep the deficit at 6.4 per cent for the current fiscal year while estimating 5.9 per cent for FY24. Also, the aim is to bring the deficit below 4.5 per cent.

Highlighting the consolidation effort during this year, Finance Secretary TV Somnathan said for FY23 market borrowing number is firm, that will not change. The remaining numbers have some fluidity, whether it is a small saving or a State government provident fund, and they are fluid numbers because if they change the number, it affects the funding plan.

Further, he said that traditionally, there is seasonality in terms of small savings where people come in last quarter as people plan their taxes in the months of February and March. So there is usually an upsurge. “Will it reach this number or not, It depends upon a number of assumptions. We are confident that, in the aggregate, the other sources except market borrowing will be close to what we have estimated. We don’t think it will have any impact on the market,” he said.